01 January 0001

Corporate Amicus: March 2019

Banning of Unregulated Deposits Schemes Ordinance, 2019
by Sudish Sharma and Vishakha Singh

In order to address the illegal deposit taking activities and to regulate them, Government of India introduced, ‘Banning of Unregulated Deposits Schemes Bill, 2018’ in the Parliament. However, since the Bill could not be passed in Rajya Sabha, the President has promulgated, ‘Banning of Unregulated Deposits Schemes Ordinance, 2019’ on February 21, 2019. The Ordinance provides for punishment involving both fine and imprisonment for the offences involving (i) soliciting deposits under the unregulated deposit schemes, (ii) acceptance of deposits under the unregulated deposit schemes, (iii) fraudulent default in registered deposit schemes and (iv) wrongful inducement in relation to unregulated deposit schemes. Section 3 of the Ordinance puts a complete ban on the unregulated deposits scheme. In relation to companies, partnership firms, proprietorship or other small businesses, another concern which may be raised, is taking of unsecured loan from the unrelated sources. The Ordinance undoubtedly aims to prohibit the acceptance of illicit deposits by deceitful and unscrupulous sources.

Relief to disqualified directors under the Companies Act, 2013
by Tanya Sharma and Anantha Desikan

Section 164 of the Companies Act, 2013 deals with the eligibility criteria for appointment of a director in a company has been critically analysed by different courts after MCA published a list of directors associated with "struck off companies”. One of the issues with the MCA Notification was its retrospective applicability. In a writ petition filed by Dr. Reddy’s Research Foundation v. Ministry of Corporate Affairs, the High Court at Hyderabad directed to restore the Director Identification Number (“DIN”) of the directors to enable such directors to submit annual returns in respect of the defaulting company for the years 2011 and 2016. In another important judgment, even Bombay High Court granted relief by passing an interim order, pursuant to which such directors were no longer considered as disqualified. Similar stands were taken by various High Courts such as High Court of Delhi and High Court of Rajasthan. Few directors were reinstated in furtherance of Condonation of Delay Scheme, while others were struck off in the cross fire. A legal recourse finally provided a glimmer of light to the aggrieved parties when in the case of Gaurang Balvantlal Shah v. Union of India, the Gujrat High Court quashed the MCA Notification and held that Section 164(2) of the Companies Act will have prospective effect only.

Directors of a company receiving remuneration are employees for purposes of Employees’ State Insurance Act, 1948
by Ankit Parhar

The Supreme Court in the case of Employees' State Insurance Corporation v. Venus Alloy Pvt. Ltd. has held that Directors of a company, who are receiving remuneration, would fall within the definition of an “employee” as provided under Section 2(9) of the Employees' State Insurance Act, 1948 and that the company is bound to deposit contributions in relation to the remuneration paid to such Directors. The Court referred to the definitions of the terms “employee” and “wages” as provided in Sections 2(9) and 2(22), respectively. Relevant portions of the Supreme Court judgment in Apex Engineering, wherein it was held that there was nothing in the Act to indicate that a ‘Managing Director’ cannot also be an ‘employee’ for the purposes of the Act, were also referred. With this judgment, one can hope that the issue of the applicability of the Act to the remuneration received by any Director of a company would finally stand settled.

Notifications and Circulars

  • ECB facility for resolution applicants under Corporate Insolvency Resolution Process
  • Amendments to Indian Stamp Act, 1899 by Finance Act, 2019

Ratio Decidendi

  • Insolvency and Bankruptcy Code is constitutionally valid – Supreme Court
  • Directors of corporate debtor can have access to documents relevant for matters to be discussed in CoC meetings – Supreme Court

News Nuggets

  • Companies (Incorporation) Rules – Rules 30(5) and 38(2) amended
  • Civil court does not have jurisdiction in any transaction created under IBC
  • New Delhi International Arbitration Centre – Ordinance promulgated
  • Adjudicating officer can determine quantum of penalty outside SEBI Section 15-J
  • In absence of a prima facie case, CCI may choose not to carry investigation
  • No interest for delayed payment if arbitration agreement prohibits so
  • Registration of company name under Section 22 not to be challenged beyond 5 years

March, 2019/Issue-90 March, 2019/Issue-90

Browse articles